How to make tax returns work

When you get that cheque back, don't just bank it, David Potts writes.

Tax returns are now due overdue, the fine is $110 for every 28 days you're late.

If you're nowhere near a tax office, try e-tax which can be done on the internet and comes with the bonus of doing all your calculations ideal if you have to depreciate anything.

If you received franked dividends during the year such as from Telstra, Commonwealth Bank or IAG but wouldn't normally have to file a return, you can still claim your 30 per cent company tax refund. You can do this on the phone without having to file a proper return if you earned less than $6000 in the year.

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If you're expecting a refund, putting it in the bank, or leaving it there if it comes by a direct credit, isn't as prudent as it sounds.

All right, it's more prudent than just spending it, but it's not as good as investing it. Remember, the interest on a bank deposit will be taxed, which sort of defeats the purpose of a tax refund. If you're saving for Christmas, same problem.

Christmas clubs are taxed and, what's worse, you get a lousy rate of interest to begin with.

Much better to

use your mortgage to advantage, especially if it comes with a redraw facility. That way you save on interest, and it's tax free. Redraws let you get the money back when you need it. If you don't have a redraw facility, a one-off payment into your mortgage, or credit card if you have an outstanding balance, is just as good. Again it's tax free, and the benefit of lower interest will compound over time. You might not be able to give up the day job, but at least you'll know your refund is growing.

Don't overlook super, either. For taxpayers earning less than $28,000 a year, the Government will give you $1.50 for every $1 (up to a limit of $1500) you put into your super fund. It has to be your contribution, not what the boss has to put in which, in case you were wondering, also rules out salary sacrificing.

Anyway, a guaranteed 150 per cent return in one year, not to mention the fact that the earnings from it are taxed at only 15 per cent, is an unbeatable investment.

If you earn more than $28,000 you can still get the government handout, but it phases down to nothing on an income of $58,000.

If your partner earns $28,000 or less, it's better to make the contribution to their super fund.